Amity Shlaes’ “A Downturn We Don't Deserve” is an inadequate attempt to explain why global markets are topsy-turvy. What Ms. Shlaes fails to do is explain why the Bush administration is responsible for present Wall Street’s blues.
I hope that it hasn’t been lost on anyone that China threaten to crash the U.S. economy if stepped up measures to even the economic playing field between the U.S. and China’s trade deficit were pursued by a Democrat controlled Congress.
Shlaes claims that questionable lending in the subprime mortgage sector is not enough to account for the present Dow Jones crisis she says that an accumulation of policy errors by political leaders, central banks or foreign governments are what causes downturns and as her title suggest America doesn’t deserve this one.
Ms. Shlaes shows ample proof of her hypothesis regarding the Great Depression by did nothing show one iota of proof that the Bush Administration has done anything to bring the economy to this point on the contrary she shows that Bush did everything right.
There's plenty of good market news this summer. Industrial production, a vital sign for the U.S. economy, is up. Businesses are profitable. Federal Reserve Chairman Ben Bernanke made a career studying the consequences of deflation and bank failures in the 1930s. That's why he knew to infuse money into the system last week.—Amity ShlaesSo Ms. Shlaes question, “Is a serious downturn possible? Yes, especially if Washington makes bigger mistakes,” is totally unjustified. She didn’t show any mistakes that present Washington made. What Ms. Shlaes does show is that this down turn is what portents for a Washington that is controlled by Democrats. She said it not me!
If Democrats win the White House by turning against free trade and then pass protectionist laws, they will be pulling a Hoover. China will trade elsewhere.Ms. Shlaes lays this whole economic debacle at the feet of Democrats present and future. Whether she intended to or not Amity Shlaes’, ‘We don’t Deserve’ gave the most cogent and well reasoned argument why Democrats would be bad for Americans economy.
Taxation is another concern. Many lawmakers want to increase taxes to cover Social Security and Medicare shortfalls. Lifting the Social Security cap, so that every dollar of income for higher earners is subject to the payroll tax, seems an easy remedy. Democrats want the Bush income tax cuts to expire.
When John Edwards advocated this last month, his words could have been taken out of a Hoover or Roosevelt speech: "it's time for us to put our economy back in line with our values." In reality, a combined change in these two levies would be a terrible blow to U.S. competitiveness, a sort of Sarbanes-Oxley of taxation.
If China could no longer see a difference between the United States and Europe, it would move more cash into euros. King Dollar might lose its throne. (China has already threatened this because of Congress’ efforts to close the trade deficit.)
In other words, the great U.S. downturn that everyone fears is possible -- if lawmakers get carried away with their own sanctimony. Not because we deserve it.
Amity Shlaes, the author of "The Forgotten Man: A New History of the Great Depression," is a senior fellow in economic history at the Council on Foreign Relations and a columnist for Bloomberg News and she should know!